Chrysler, China's Chery Sign Vehicle Export Deal

AP

Wednesday, 4 Jul 2007 | 6:01 AM ETThe Associated Press

SHARES

Chrysler Group signed a deal Wednesday with China's biggest automaker, Chery, to produce cars for export to the United States and elsewhere in the first attempt by a major automaker to use China as a manufacturing base for world markets.

The first cars will be exported within a year to Latin America or Eastern Europe, and models should reach the United States and Western Europe within 2 1/2 years, said Chrysler Chairman and CEO Tom LaSorda.

"As of today, we're committed to building vehicles here for export," LaSorda said at a signing ceremony held at a Chinese government guesthouse. "We will combine Chrysler's research and technology and global reach with Chery's lean manufacturing."

The deal is part of the money-losing DaimlerChrysler unit's strategy of trying to cut costs and respond more quickly to market demands through production deals with local partners around the world.

Major automakers all have set up factories in China, which overtook Japan last year to become the world's No. 2 vehicle market after the United States. But until now, production has focused on meeting booming local demand.

China's own small but ambitious automakers are eager to break into the U.S. and other major markets, but analysts say they cannot meet safety and pollution-control standards on their own.

The vehicles made by Chrysler and Chery could become the first cars produced in China to be sold in the United States.

A1 the First; SUVs on the Way

The first vehicle exported will be based on Chery's A1 compact sedan and sold under the Dodge brand, LaSorda said. The companies would jointly develop future models, probably with Chrysler styling on a Chery platform, he and Chery CEO and Chairman Yin Tongyao said.

Another Chinese automaker, Changfeng Motor, said in January it hoped to sell sport-utility vehicles in the United States within two years but has given no details of its plans. Chery had an earlier deal with American entrepreneur Malcolm Bricklin to sell cars in the United States but that fell through.

Chery Automobile, founded in 1997 and based in the eastern city of Wuhu, is China's biggest and fastest-growing automaker. It reported sales of 270,000 units last year in China, with about 40,000 more exported.

The Chrysler deal will help Chery improve its skills as it tries to expand foreign sales of its own models, Chery's Yin said.

"Chery is still young, so we should learn from Chrysler and improve our own competitive edge in the near future," he said.

LaSorda said he had "no concerns at all" about convincing U.S. consumers that Chinese-made cars are safe at a time of warnings about seafood, tires and other goods imported from China. Chrysler would work closely with Chery to ensure the cars meet U.S. and European safety and emissions standards, he said.

China's red-hot market has been a bright spot for U.S. automakers amid lackluster sales at home. General Motors was the market leader last year.

Total passenger car sales rose 37% last year to 3.8 million, while total vehicle sales rose 25.1% to 7.2 million, according to the China Association of Automobile Manufacturers.

More Partners

Chrysler and Chery declined to release financial details but LaSorda the venture's sales in some foreign markets were expected to reach several hundred thousand vehicles a year.

The deal follows DaimlerChrysler's agreement in May to sell 80.1% of Chrysler to U.S. private equity firm Cerberus Capital Management, freeing a streamlined parent company to focus on its truck and luxury Mercedes car lines.

LaSorda said Chrysler picked Chery after looking at potential partners in Europe and Asia.

"We researched the world and found they were the best," he said, referring to Chery.

Asked whether Chrysler was worried that the alliance might help Chery develop into a competitor that might threaten its U.S. partner, LaSorda told The Associated Press, "No, we're not. With us or without us, they're going to grow. So the question is, 'Are you going to go with a winner?'"